With the holiday season drawing near, Teddy Bears are not the only "bears" on the minds of investors on and off the Tufts campus. Business analysts are attributing signs of a slowing economy to a staggering bear market. Declining stock prices, especially in technology stocks, and a lower-than-expected growth rate in productivity are among the numerous attributes characteristic of the nation's bear market.
The most hard-hit area of the economy over the past year has been the technology sector. Tech stocks, which make up about 27 percent of the market, were down more than 20 percent on average this year. Many see this year's lackluster performance as especially troubling since tech funds have experienced only two down years in the past 20: 1981 and 1984.
Dot-Com companies like Priceline.com and Amazon.com, which flourished in the '90s, suffered a poor start in the new millenium. Priceline.com (PCLN) currently trades at about $2 per share, and is down from its year high of $104.25, while Amazon.com (AMZN) trades at about $26 per share, down from its year high of $113.
These lower returns have been disturbing for shareholders considering the market's bullish reputation.
"WorldCom's been on a steady decline over the past year," said Tufts junior Alyssa Serian, who owns shares in the company. "It's really frustrating. I don't have very much faith in the stock market as of yet."
WorldCom Inc. (WCOM), which currently trades at about $15 per share, has fallen far from its year high of $55 1/8.
Technology is not the only sector feeling the effects of the bear market. "Not in the least," said sophomore Christopher Goodchild, a General Motors Corporation shareholder. "Non-tech stocks like General Motors (GM) are feeling the negative effects as well. I've lost a fair amount of money since January."
Investors are inclined to agree that a bear market generally affects almost every sector of the economy. The company, which currently trades at about $50 per share, is down from its year high of $94 5/8.
Stock analysts generally credit the nation's declining market to two late events: interest rate hikes and political uncertainty.
In the sixth successive interest rate hike since June 1999, Federal Reserve Board Chairman Alan Greenspan announced a half-point interest rate hike last May, bringing the federal discount rate to 6.5 percent. Higher interest rates make it more expensive to borrow money, and as a result consumers tend to spend less, decreasing the risk of inflation.
The effects of the Fed's rate hikes were not apparent until late in the year however, about the same time students left for college. The Real Gross Domestic Product (GDP) - the output of goods and services in the United States - increased at an annual rate of 5.6 percent in the second quarter of 2000 compared to a 2.4 percent increase in the third quarter.
Stock market investors often react negatively to uncertainty. Following this year's presidential election, concern over who was going to follow Clinton into the White House damaged an already declining market.
The Wilshire 5000 Total Stock Index, the broadest measure of the US market, declined sharply following the Nov. 7 election.
"The presidential election impasse is not the only cause but indecision is itself a contributing factor to the decline, at the very least," said Tom Stevens, senior managing director of Wilshire Associates. At the close of the election, the Wilshire 5000 was at 13,403. By Nov. 20, it had fallen to 12,361.
On Dec. 4, following Leon County Circuit Court Judge N. Sanders Sauls' rejection of the Gore campaign's request to recount 14,000 votes in Miami and Palm Beach counties, the market began to show signs of revival. Investors found comfort in the idea of a prompt end to the election process and a probable Bush victory.
After a speech from Greenspan commenting on apparent signs of a slowing economy the next day, the market rallied even further. Investors interpreted the speech to mean that the Fed will be modifying its policy, and might even lower interest rates at its Dec. 19 meeting.
On Tuesday, the Dow Jones industrial average closed ended up, rallying to 10,898, a 337.77-point jump. The NASDAQ Composite Stock Index rallied to 2,889, up 274.05 points.
Following Tuesday's rally, market analysts predicted a brighter future for the economy. Brian Conroy, head of listed trading for J.P. Morgan, forecasted a positive growth rate in the market.
"The fear of a hard landing may be abating, so investors are gaining confidence in the future,"he said.
